(MTAV714) Residential Development in Liverpool DEFAULT (MT)

The borrower has put forward a proposal. Let me guess, they can’t afford the interest but can afford to repay the loan at a discount. Screw this borrower.

It's even worse than that. Usually the only way to dispose of a half finished development is by auction and then there is nothing to prevent the borrower from bidding and in my experience he always wins the auction, so you don't succeed in "sticking it" to them, probably quite the reverse. The existing developer has the advantage over prospective buyers because he knows the exact state of play whereas they will be buying a pig in a poke.

This isn't a half finished development! This is currently a cleared plot after the demolition of the original building noted in the valuation report from May 2017. If any, the value of the land has gone up because the cost of the demolition has been incurred. This should be a relatively easy new valuation and a straightforward disposal unless the property prices have collapsed in the area. 

Yes, its a bridging loan to finance the purchase of the site not development. Its basically a cleared site which will have added some value, plus it has enhanced planning. Unlike a partial complete site there are no issues with warranties, quality of work etc which have to be factored into price & tend to reduce.

The value of the land is related to the planning, if the purchaser wants to build to plan then the value has relevance, if they dont then its just worth the value of a cleared plot in Liverpool.

Then there is the distressed sale element, there is no valuation for that as it is entirely dependent on circumstances at the time so will be impacted by the state of the Liverpool commercial property market, eg oversupply of distressed sites which is likely to force prices down, demand for accommodation proposed, residential better than student but still impacted by Covid related city exodus, leasehold backlash etc.

If this goes to auction it wont realise anywhere near the valuation IMO, nothing ever does. That said I dont see much sale by auction of P2P development sites anyway,  (struggling to think of one) nearly all by private treaty. Closest you get is sale in post auction negotiations

I would vote for this plot to be auctioned off, even if it meant a loss of 20 - 30%. I can’t recall a case in p2p where giving an extension to delinquent borrowers with poor communication has been beneficial.

Quite a bit more than that, factor in costs of sale & MT, getting close to 70%, possibly more if we want interest. Bought for £3.4m, I suspect probably get about £2m in a distressed sale.

Had forgot I ended up with £7m land value.

This was my exercise.

I have never had anyone on this thread willing to discuss or argue these calculations, up or down, but would be obliged if you do.

Let's have a go at rough costings. Ex surveyor here, out of touch.

10520 sqm floor area @ build cost of £1500 sqm. (Valuation suggests £1323 sqm)

Build cost £15,780,000. (Valuation suggests £21,000,000 inclusive of professional fees, extracted from a tendering process)

Finance average over 4 years, £4million to £20 million @ 12% £5.76m, (Valuation suggests £1,278,023 )

Developer profit say 25% of sales value £9.5m (Valuation suggests less at £7,623,650)

2017 Sales value or GDV £38,118,250

Leaves £7 million for the land & any other sundry costs. (Valuation suggests £13000 per dwelling, hence £4m security)

What are we waiting for? What is the difficulty with refinancing or selling on?

Note. I picked up the valuation figures after I did my own, as I did not realise they were already available.

The finance appears too low, but it is as broad as it is long. The profit figure is certainly some buffer.

If & when arrears are paid, the borrower would have paid approaching £1 million in interest payments.